The Trading Strategy This Week
Kevin Haggerty is a full-time professional trader who was head of trading for Fidelity Capital
Markets for seven years. Would you like Kevin to alert you of opportunities in
stocks, the SPYs, QQQQs (and more) for the next day’s trading?
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The SPX finished the week at -1.8%, and was -1.3% on Friday to 1502.56. NYSE
volume expanded to 2.2 billion shares, with the volume ratio 25 and breadth
-1610. After an early downside from the previous 1522.19 close, the SPX traded
between 1511.12-1515.97 until the spike down from 1514.32 on the 12:05 PM bar,
due to the Bear Stearns hedge fund mortgage bail-out news, which traded to
1501.94 on the 12:30 PM bar. After that, it traded sideways into the 1502.56
close. The SPX futures accelerated this drop on the news, and buyers just walked
away. This was the 4th interest rate/subprime news-related drop of more than
-1.0% in the last 15 trading days. The financial sectors led the downside last
week, as you might expect, with the $XBD -3.6%, BKX -2.7% and then the drugs,
with the PPH -2.9% as the Democratic congress pushes for their “utopia of
socialized medicine.”
The bulls were out in force over the weekend and this morning, with the spin
that interest rates are rising because of strong economic growth, not because of
rising inflation. Reality is that interest rates have been rising, but they are
not that high, and the economy is slowing considerably. The ongoing statistical
reporting comedy by the government is the final Q1 GDP number, which started at
+2.3% and is now looking +0.6% annualized, which is almost no growth at all and
+0.15 for Q1. This will be a busy week for economic reports, including the GDP
final Q1 number on Thursday, in addition to the Fed policy statement. It is also
the last 5 trading days in Q2, and the important 6-month report card for money
managers. This seasonality has the obvious upside bias. The SPX closed at
1502.56, near the bottom of the 1540.56-1487.41 trading range since 5/3/07, and
also the 4-week -2.0 Standard Deviation level. If the bulls believe their own
spin, and also want to mark up their portfolios, you have to bet that the SPX
will close higher this week than last. The PPT (Plunge Protection Team) will
probably step in to buy futures and accelerate buy programs if the interest
rate/subprime news expands, and the Fed will once again make a calming
statement, as they have twice before. However, from a daytrading standpoint you
could care less about the ongoing news soap opera, because it all means
volatility, and that’s what makes it all work for the aggressive trader.
The SPX has stalled out at the 1535-1540 key price zone, with the high close
at 1539.18 on 6/4/07 and 2 swing point intraday highs of 1540.56 (6/1/07) and
1538.71 (6/15/07). The key swing point trading range low is 1487.41, made on
Friday, 6/8. It remains a trading range markup unless that low gets
significantly taken out, and there is no downtrend to talk about from the
possible double top. The downside price objective of the M-pattern measures to
1434, which is just a -6.9% decline from the 1540.56 SPX cycle high, which is
about the same as the last significant short-term leg down from 1461.57
(2/22/07) – 1364 (3/14/07), which was -6.7%.
Net-net, traders, we play the current bottom part of this trading range from
the long side this week until proven otherwise.
Have a good trading day,
Kevin Haggerty
Check out Kevin’s strategies and more in the
1st Hour Reversals Module,
Sequence Trading Module,
Trading With The Generals 2004 and the
1-2-3 Trading Module.
